How is the mortgage market coping with rate cuts?

In recent weeks, the number of lenders reducing rates to below 5% has increased steadily, with Santander becoming one of the latest to do so.

So, how is the market performing at present and how are brokers coping with the conditions?

How is the mortgage market fairing with unsteady conditions?

Austyn Johnson (pictured left), founder at Mortgages For Actors, said lenders find themselves navigating a complex terrain, caught in a dilemma where offering a low loan risks minimal profitability, necessitating an increase in fees.

“Yet, this strategy often triggers discontent among borrowers who may seek alternatives; conversely, charging a higher interest rate with lower fees invites grievances about the elevated cost of borrowing,” he said.

Johnson added that it is a precarious balancing act where lenders grapple with the challenge of managing customer satisfaction on multiple fronts.

Complicating matters, Johnson added, is the tendency of ‘armchair brokers’ to fixate solely on rates and fees.

This narrow focus, he said, often leads them to overlook the broader financial landscape and the importance of future-proofing.

“Take, for example, the rush for lower rates without considering that certain lenders, due to securitisation, do not offer Product Transfers (PTs); this oversight risks transforming borrowers into mortgage prisoners, tethered to Standard Variable Rates (SVRs) in pursuit of minimal savings,” he said.

The key, Johnson said, lies in transcending this narrow-minded fixation on rates and fees - he believes it is imperative to assess the bigger picture and consider future implications.

“Presently, swap rates hover just above 4%, signalling that lenders may find it necessary to incorporate fees if the rate approaches this threshold,” he said.

The challenge for both borrowers and brokers, Johnson added, is to move beyond immediate cost factors and delve into crafting a comprehensive financial plan that ensures the best possible outcome for the client.

Achieving this balance, he said, involves understanding the intricacies of each lending option and avoiding the pitfalls of tunnel vision.

Brokers and borrowers alike, Johnson said, must strike a chord that harmonises rates, fees, and long-term financial sustainability.

“In doing so, they can navigate the intricate landscape of lending, steering clear of becoming mortgage prisoners and securing a robust financial future,” he added.

How are brokers navigating consistent rate cuts?

Justin Moy (pictured right), managing director at EHF Mortgages, said in the ever-shifting landscape of finance, the cost of money continues its descent, albeit with a recent deceleration in SWAP rates.

“The much-anticipated window for securing a killer rate has not fully materialised in recent days; it is a scenario reminiscent of a herd mentality among mainstream lenders, akin to sheep following the lead of the first mover in rate adjustments,” he said.

The expectation, Moy added, looms that more lenders will inevitably follow suit in the coming days, perpetuating a chain reaction of rate adjustments.

For mortgage brokers navigating this terrain, he said, the journey is far from easy when rates are in flux.

“The current trend of falling rates prompts proactive measures among brokers, such as swapping clients to capitalise on more affordable rates,” Moy said.

While this undoubtedly benefits the borrower, he said that it comes at a significant financial cost for broker firms.

“Consider the intricacies of the process, deals booked early now find themselves on their fifth or sixth mortgage offer due to these continuous rate changes,” he said.

Each alteration, Moy added, triggers a cascade of associated costs, including the generation of reports, sourcing efforts, and various processing expenses.

The financial toll on broker firms, Moy said, becomes all the more pronounced, particularly when factoring in that a substantial number of lenders offer a diminished broker income on PTs.

“Moreover, the life of a mortgage broker is a delicate balancing act, particularly in the current climate where rates are fluid,” he said.

Navigating the complexities of these market dynamics, Moy said, requires a strategic approach, with brokers weighing the benefits for borrowers against the financial implications for their firms.

“As the financial landscape continues its ebb and flow, mortgage brokers find themselves at the intersection of opportunity and challenge, making crucial decisions that shape the trajectory of both borrower satisfaction and the financial health of their own enterprises,” Moy added.

Do you believe lenders are jockeying for position with rate cuts to grab headlines? Let us know in the comment section below.